August 22, 2016
As much as FinTech entrepreneurs would like to attribute their success to groundbreaking solutions and talented teams, it is rarely a single journey. Substantial role in growth and development of FinTech plays the ecosystem – competition, regulators, financial institutions, consumer market, supporting ventures like accelerators and incubators, VCs and dedicated funds. For FinTech in particular, traditional financial institutions have been of immense support regardless of the fact that they often represent direct competition.
By some estimations, ~$4.7 trillion out of $13.7 trillion of the traditional financial services’ revenue is at risk of being displaced by new technology-enabled entrants. Whether the estimations are exaggerated or not, there is still a general consensus that FinTech has a substantial impact on the financial services industry and its traditional players.
Although some FinTech players would position themselves as rivals to traditional banks, those very banks are at the foundation of growth and development of the global FinTech ecosystem. Some of the most forward-thinking institutions have turned to building beautiful friendships with FinTech startups and passionate support of the community of bright entrepreneurs that may result in mutually beneficial outcomes.
In fact, according to some estimations, three of the largest FinTech investors are international financial institutions – Citi Ventures by Citi, followed by Goldman Sachs and JP Morgan.
As Overbond reported in mid-July, Citi Ventures made 42 investments in 33 companies. Since 2009, Citi has invested over $1.2 billion through its venture arm. Citi along with JPMorgan is among the most active financial institutions patenting solutions across segments. Citibank has also set up three separate systems within the bank that deploy blockchain-based distributed technologies. They developed an equivalent to bitcoin called Citicoin, which is being used internally to understand the digital currency trading system better.
As for Goldman Sachs, the total investments since 2008 are reported to reach over $800 million. The bank has been at the forefront of innovation and at the end of last year filed a patent application with the US Patent & Trademark Office titled Cryptographic Currency For Securities Settlement for a cryptocurrency called SETLcoin, which is supposed to enable P2P transfers with cryptographic tokens representing securities with instant settlement.
Not to be left behind, each year JPMorgan is reported to be dedicating ~$3 billion in technology with a large portion of that funding going towards FinTechs.
It is also worth mentioning Bank of America, which at the beginning of this year, was reported to be setting aside $3 billion from its annual budget for investing in technology and innovation.
Aside from direct investments in FinTech startups, banks have been actively developing the accelerator/incubator ecosystem around the world. The largest financial institutions are involved in some sort of accelerator/incubator one way or another – whether in partnerships or by launching one of their own. Here are some examples of FinTech-related initiatives by the largest banks.Barclays The Barclays Accelerator Program is a 13-week program in partnership with Techstars. Barclays provides tools, equipment and facilities for startups. In conjunction with Techstars, they provide dedicated mentorship for select startups and entrepreneurs. The accelerator program was initially launched in London and is now being run in London & New York.</p>
During Mid-June 2016, Barclays launched FinTech innovation platform Rise Mumbai in order to provide a physical space for startups in a co-working environment along with event spaces and meeting rooms. The site was launched in partnership with 91springboard – a co-working community that helps provide space and organizes events.
Flat6Labs in cooperation with Barclays Bank Egypt has opened the doors for participation in its one-of-a-kind 1864 Accelerator Programme launched for the first time in the Egyptian market. 1864 Accelerator aims to qualify a new generation of entrepreneurs in Egypt through the adoption of creative ideas that can open up new opportunities in financial technology.</td> </tr>Citibank Citibank launched its first accelerator program in Tel Aviv in 2013. The four-month program was run three times and a total of 333 startups have participated in it till date. In December 2014, Citi Ventures partnered as the first Platinum-level Global Anchor Partner for Plug and Play to expand its FinTech Accelerator program to the US, Germany, Singapore and Spain. Citi has also launched Citi Mobile Challenge, a virtual accelerator program that combines a virtual hackathon with an incubator and is focused on the APAC region. Participants of the Citi Mobile Challenge are provided with a FinTech accelerator program that includes mentorship and a virtual and on-site boot camp curriculum. Commerzbank Main Incubator was formed in 2013 and is run in partnership with Commerzbank in Germany. The program works by accepting invitations from startups. Upon selection, the terms and conditions are set for the startups to enter the program. After four to five months of the initial phase where the team starts building their product with the support (VC funding, office space and expert know-how) from the incubator, the investment committee reviews the status and decides on further funding. Wells Fargo The Wells Fargo Startup Accelerator is a six-month program which is run twice a year. The 2015 event witnessed over 300 applications out of which three startups were selected: Bracket Computing, Context360 and MotionSavvy. Startups who have previously participated in the program include EyeVerify, Kasisto and Zumigo. Royal Bank of Canada Another North American giant, Canada’s RBC Bank has been eyeing Silicon Valley talent for its innovation lab, as Reuters reported in the last days of May. According to the source, RBC wants to team up with Silicon Valley’s brightest talent to position itself at the forefront of new financial technologies. RBC sets aside $78 million as seed money to invest in startups and talent. Further, as the Vice President of Innovation Gabriel Woo shared, the bank will look to open more labs around the world. Silicon Valley Bank & MasterCard Silicon Valley Bank (SVB) and Mastercard have launched Commerce.Innovated, a four-month, bi-annual virtual accelerator designed to help seed-stage startups that are innovating in the commerce, payments and financial technology sectors to refine and scale their business ideas. The program offers access to operational and industry expertise from Silicon Valley Bank, MasterCard and their respective networks. JPMorgan Towards the end of June, JPMorgan announced the launch of In-Residence, a program for FinTech startups to sit ‘side by side’ with its businesses in order to develop innovations that could revolutionize the sector, enabling banks to operate faster, safer and at a lower cost. Emerging FinTech companies that become residents will join the bank for six-month periods and have access to the bank’s facilities, systems and expertise. Residents will retain control of their innovations and may receive continued support from the bank even after the residency period in an effort to bring their solutions to market. Axis Bank Axis Bank also aims to ride the wave of FinTech transformation with the launch of its innovation lab to tie up with FinTech startups. As reported by the Business Standard, the innovation hub in Bangalore will focus on curating startups and work with them to develop value propositions. Axis Bank will also be looking to possibly absorb their technology. Bank of England Among the most recent initiatives is also the Bank of England FinTech Accelerator, which was launched in mid-June this year to work in partnership with FinTech firms on challenges that the bank faces. The accelerator will work with new technology firms to help the BoE to harness FinTech innovations for central banking. Partner firms will be selected to engage in short proof-of-concept projects (POCs) that are relevant to the bank’s mission with all commercial considerations being taken into account. Capital One In mid-May, Capital One unveiled the news on launching Capital One Growth Labs in the UK, an accelerator program for early-stage startups and high-growth companies. The initiative, in partnership with corporate innovation specialist and tech investor L Marks, aims to discover innovative new businesses and give them cutting-edge support to develop technologies for the financial sector. </tbody> </table>
The ecosystem is vast and there are certainly more examples of ventures launched to support FinTech startups and bring the best to the financial services industry. It is very rare that financial technology startups can succeed in the complex environment of developed countries and dedicated supporters are the ones building the foundation for future growth and borderless opportunities.